Blockchain is a unique ingenious technology that can be used virtually everywhere ranging from payment system development to dealing with the Internet of Things (IoT). Some people even call it "the new Internet." Indeed, the idea of a digital ledger that can be programmed to record any kind of transaction looks pretty inviting for those users, who want to exchange crucial information with other people directly, without intermediaries and regulators.
However, there's another more thing to keep in mind: no two blockchains are alike. Knowledge of key features of different blockchain types can make life a lot easier for a crypto investor or business owner willing to deal with a cryptocurrency. So, how about to see, what's the difference between private and public blockchains?
Now, first things first, to define a blockchain would be a good start.
What is a blockchain and what it's for?
At a most basic level, blockchain is a string of ledger records shared by multiple parties over a network in order to keep everyone honest. For an end user, basic blockchain technology offers two obvious benefits: redundancy and corruption resistance.
When we look a little deeper, we could find some more cool stuff about shared ledgers. So, if you decide to rely on blockchain technology, you can count on:
- A single source of vital data. At any time, all users in a network refer to the same source for information. This opportunity gives conclusive advantages of using blockchain in healthcare.
- Early detection of pesky human errors. All human or app errors can be easily detected and fixed as all parties in a network need to give consensus.
- High security level. In case of need, it's possible to compare ledger copies of all parties to prevent "nasty situations" related to potential scam attempts.
- Disintermediation. Although that word may hardly seem readable, it means that you need no intermediaries and additional cost to connect a party you need.
- Better customer experience. You can do business with any manufacturer or customer within your network.
- Transparent audits.
Blockchain has many faces
Back in 2015, Vitalik Buterin, a co-founder of Ethereum cryptocurrency, identified three different types of blockchain. They are:
- public blockchain: a ledger of freely conducted transactions;
- consortium blockchain: a ledger owned by a consortium. All transactions there are coordinated by nodes selected by the consortium;
- fully private blockchain: a ledger of transactions coordinated by a central authority.
At the same time, Sir Mark Walport, the Government Chief Scientific Adviser in the UK, offers a different set of blockchains:
- unpermissioned (open) public ledgers;
- permissioned (closed) public ledgers;
- permissioned (closed) private ledgers.
Private vs public
In most cases, to avoid confusion and misunderstanding, they often identify only two main blockchain types: public (open) and private (closed). The first type includes initially unpermissioned (closed) lists of ledger entries. The second one is completely open and doesn't need a supervisory authority.
To understand the difference between blockchains, try to answer these questions:
1. Who's allowed to create ledger entries?
2. Who has access to critical data?
3. Who's responsible for the network integrity?
Well, we made it sound so simple. However, existing practice shows that it's still not so easy to feel the difference between two aforementioned blockchain types. The reason is, there's a number of points common to public and private "chains." Here we give you some of them:
- Both are decentralized P2P networks that use shared transaction ledgers. Typically, such systems are used to build reliable cryptocurrency exchange platforms.
- Both use special rules (consensus mechanisms) to align the ledger contents.
- Both guarantee the integrity of the registry in case of a collision with scammers or hackers. You can check the list which will provide a high level of security.
… and so different
In general, a need to use a particular blockchain kind is based on the essential user needs. Some businesses don't support the idea of an open network due to specific nature of their activities. Instead, they prefer to deal with private (closed) peer-to-peer networks that provide an opportunity to control all transactions single-handedly.
As for a public blockchain, it allows any participant to create and monitor transactions. Using special algorithms (proof of work or proof of stake), the system can boast of a pretty high security level.
Pros of a public ledger
Perhaps, the main advantage of an open blockchain is the absence of a supervisory authority. Everyone can coordinate transactions within the network including, developers, miners, manufacturers, customers, etc.
Moreover, an open network allows to develop decentralized apps that require minimum maintenance costs.
As for the other pros of a public ledger, they are:
- No more censorship. In an open system, it's pretty hard to change vital elements without any concern about other parts. As a result, open ledgers offer better confidence level. Weakness is often strength, indeed!
- Strong network effect. In an open system, a developer has better chances to gather users around a new application. The point is, all parts of an open ledger can contact each other directly from any part of the globe. So, information spreads in a jiffy. Usually, it's only enough to let your web-wallet support available apps to stay informed.
- Data security at a fair price. In addition, to attack an open ledger, hackers will need a set of really powerful solutions. In other words, hacking a public network isn't cost-efficient even for the most determined intruders.
Pros of a private ledger
As stated above, private blockchains limit access to transactions between the parts. All important functions including transaction verification, audit and database coordination are available to a limited number of persons. In other words, a private ledger is a centralized system with its very own set of rules.
Frankly, closed blockchains often can do little more than a traditional database. Just like a database, a private ledger offers permissions, multiple input validation, multiple copies, append-only writes and logs of all people accessing it.
Nevertheless, private blockchain has its advantages. They are:
- Cheaper transactions. In opposite to public ledgers, is a closed network all transactions between the parts are verified by a few authorized persons.
- Private ledger can boast of higher transactions-per-second (TPS) parameter limited by capacity of the weakest network node.
- Prompt transaction verification.
- Transaction rollback. In case of need, a company owning a ledger can cancel transactions and change the balance. Sometimes, that approach pays off and allows to prevent the transfer of valuable assets to fraudsters.
It's time to sum up
As you can see, public and private blockchains are different enough. It would be nearer the truth to say: "Private AND Public" instead of "Private VS Public." Each system has its own pros and cons. The only thing you really need is to decide: which type of blockchain responds better to your current needs.
Another good news is that there are project like Dubbed Aion implemented by Nuco Inc. The main goal of those projects is to combine private and public ledgers in order to ensure safe and fast data transfer between different networks.